Review of Bill Schultheis’ The New Coffeehouse Investor

The author's marketing company kindly sent me a complimentary company of Bill Schultheis' latest reworking of his book: The New Coffeehouse Investor.  According to the “about the author” section in the book, Mr. Schultheis is an investment adviser with Soundmark Wealth Management, LLC, a fee-only registered investment adviser located in Kirkland, Washington.

In the preface and in the final chapter of the book, the author outlines the three big points:

• Don't put all your eggs in one basket.
• There is no such thing as a free lunch.
• Save for a rainy day.
  

The book's weapon of choice to reaching these goals largely centers around the well-worn merits of thrift and buy-and-hold stock market index investing:

• By “buying the whole market” you diversify and minimize the risk of buying heavily in an overbought sector, or in a bad company.
• Actively-managed stock funds that outperform the broad market are in the minority.
• The fees of actively-managed funds are higher than those for index funds.
• The turnover ratios for actively-managed funds is usually higher than those of index funds, so current tax implications are usually lower for index funds.
• The market wrings out any inefficiencies, so the best response to chasing gains is to say “homey don't play that.”
• Compounding, compounding, compounding, reinvesting the dividends, spend less than you earn, etc.

It mentions bonds and bond funds briefly, but it's clear that the book's primary focus is low-cost index funds.

Would I recommend this book? It depends to whom.  For someone who's a seasoned investor and uses stocks, bonds, and cash as a starting point for their options, I don't think that person would be stretched by the investing content of the book.  It's basic stuff.  (The anecdotes and analogies might be interesting to a person more outdoorsy than myself, though.)

For someone who's never heard of index-fund investing, it would be informative.  Along with my recommendation, though, I'd also make it clear that this is a starting point and not an end-all, be-all, for the same reason that it's limited in scope.  This isn't just meant to pick on this book in particular:  It would be true for any broad-market book on investing that doesn't stray beyond the cozy confines of stocks, bonds, and cash.  It's necessary to understand what stocks, bonds, and cash can do for you, but it's also important to understand what they can't do for you.  For starters, index funds avoid the problem of “putting all your eggs in one basket” with respect to stocks, but those little baskets can still be all within a bigger basket:  stocks.

Competent investment advisers certainly need to provide advice that match their client's level of understanding, and (I would hope) encourage them to learn more.  But everyone must start somewhere, and The New Coffeehouse Investor is a good overview of mainstream investment advice with a unique voice.